Back in 1970, the economist Milton Friedman famously stated: “The business of business is business”, and that a business’ only social responsibility is “. . . to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game”. The question worth asking is, is this enough in a country buckling under the weight of myriad social and environmental challenges?
CSR and Shared Value
To varying degrees, a number of companies operating in Trinidad and Tobago have embraced the concept of Corporate Social Responsibility (CSR), defined by the World Business Council for Sustainable Development (WBCSD) as, “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.”
However, CSR has a mixed track record in terms of its ability to create widespread and long-lasting solutions to social and environmental challenges. This is in part because CSR programmes often lack the strategic intent, coherence and rigour of core business functions, not to mention financial backing. This is not a criticism, it is a description of reality locally and in many companies around the world.
One way to counteract this is for companies to shift their focus from purely philanthropic CSR activities towards more strategic ones, aligned to their business’ purpose. Such activities are more likely to create shared value for society/the environment and the business. In this context, shared value is defined by Harvard University’s Michael Porter and Mark Kramer as, “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.”
Such a shift will not happen overnight. It will require concerted effort and thoughtful introspection on the part of businesses. However, there are significant benefits to be had from a more strategic approach to social and environmental issues, particularly when this is aligned to, and embedded within, the core business.
Benefits of a more strategic approach
While there are a whole range of benefits to be had, this article chooses to only focuses on four, none of which is the commonly cited reputational impact.
- Greater positive impact on beneficiaries – First and foremost, your business’ social and environmental activities should aim to have the greatest possible positive impact on beneficiaries. In some instances, such as disaster relief efforts, this may be achieved by providing financial or in-kind contributions. However, in the absence of a natural disaster companies may have a greater impact by providing pro bono services, skilled volunteering or capacity building support. For example, take the hypothetical example of a small but ambitious NGO. Financial contributions are critical, but the long-term viability and success of the NGO is also dependent on a strong network, the existence of robust processes and controls, and access to people with the right skill-sets. With that in mind, how best could a law-firm, accounting business or marketing & communications agency maximise its impact on the NGO and its beneficiaries?
- Revenue growth and cost savings – Let’s consider a couple of examples. Ecomagination is GE’s growth strategy to enhance resource productivity and reduce environmental impact through commercial solutions for customers and through its operations. As a result of this strategy, GE has been i) investing in clean technologies and business innovation (e.g. wind turbines, solar energy solutions and smart building technology), ii) developing solutions to increase economic growth while reducing resource use (e.g. more efficient aviation jet engines, lighting solutions and gas turbines) iii) entering strategic partnerships to solve some of the world’s most difficult environmental problems (e.g. with Intel, Walmart, Goldman Sachs and a number of oil & gas companies) and iv) reducing the impact of its operations on the environment.
Since its launch, Ecomagination has generated US$270 billion in revenue on an R&D investment of US$20 billion.
Unilever’s Sustainable Living Plan (SLP), which aims to grow the business whilst decoupling its environmental footprint, and increasing positive social impact has resulted in avoided costs of over €700 million by cutting waste and increasing resource efficiency. Some of these savings have resulted from a reduction in packaging through the use of lightweight materials, optimising packaging design, developing concentrated versions of products and eliminating unnecessary packing. In turn, the business has improved its margins and made itself less susceptible to volatile global resource prices.
- Improved employee engagement – It is no secret that employee engagement, defined as the emotional commitment that employees have to the company and its goals, is critical to business success. Poorly motivated employees are unlikely to perform at their best, more likely to look for opportunities elsewhere, and may foster negative views of the business both internally and externally. On the other hand, staff who feel valued are more likely to perform better, have higher productivity and retention rates, and contribute to a positive work environment. What is less well known, but has been demonstrated by numerous studies, is that a company’s commitment to social and environmental causes makes a real, positive contribution to employee engagement. For example, PwC in the United States, whose corporate responsibility programme focuses on ‘closing the opportunity, education and skills gap by empowering educators and inspiring students’, estimates the impact on employee retention to be worth US$165 million. This is in part driven by a 5% higher retention rate among employees who participated in the company’s corporate responsibility programmes.
- Making a demonstrable contribution to national development priorities – Our country, blessed as it may be, does not want for economic, governance, social or environmental challenges, some of which have been identified by the government as national development priorities. In addition, in September 2015 Trinidad and Tobago was one of 193 countries to agree on the UN’s Sustainable Development Goals (SDGs) – a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity. The private sector will be a critical enabler for both the national development priorities and SDGs, through CSR type activities and more importantly, the provision of products and services that help that tackle these challenges. The ability to clearly demonstrate a meaningful contribution to these challenges will be a powerful asset for business when engaging with its stakeholders, including customers and regulators.
This article considers just four of the benefits of a more strategic approach to social and environmental issues. To these you can include reputational benefits, brand differentiation, increases in customer loyalty, compliance with regulatory and customer standards, strengthened stakeholder relationships, improved access to talent, and the identification of environmental and social risks along your value chain.
Like anything else that is worth doing, it will take time and effort to implement such an approach, but consider it an investment in your business, your community and your country.
This article was originally published in the Trinidad & Tobago Express Newspaper on the 5th July 2017.